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Making Instalment Payments to CRA

We often get the question from our clients “Why do I have to pay tax instalments?”

If you had tax owing of more than $3,000 in the prior tax year, the Canada Revenue Agency requires that you make recurring income tax payments (otherwise referred to as instalments) by a specific date.

These recurring payments are tax instalments based on income earned in the current calendar year and remitted to the government, much like an employee has tax withheld on each pay cheque by their employer. These payments are applied to the income tax that will be owing by April 30th of the following year.

There are three options available for instalment payments:
No calculation method – this method is best used when your income, credits and deductions remain consistent every year; CRA uses this amount in the instalment reminder and it is based on the last two taxation years.

Prior year option – instalments are based on the prior year tax return. This method is most suitable if your current year income, credits and deductions are similar to the prior year amount, but differs from the amount two years prior. CRA provides a calculation chart for instalment payments on their website, you can link to it by clicking here.

Current year option – This option should be considered if your income, credits and deductions are significantly different in the current year than in the two previous years. In this case, the instalment payments are based on the net tax owing on your estimated current year income along with CPP contributions and voluntary EI amounts. To assist you with the calculation, CRA provides a calculation chart for instalment payments on their website (see link above)

If you decide to use the prior year option or the current year option and make the payments in full by their due dates, CRA will not charge a penalty or instalment interest unless the amounts calculated are too low.

It is important to note that if you estimate the tax owing for the current year will be less than $3,000, you are not required to make instalment payments, even though you may receive reminder notices from CRA.

If you would like to discuss instalment payments or need further clarification on this article, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

EI Eligibility – What Happens When a Family Member is Employed?

There are over 1.2 million small businesses in Canada, and for many of these businesses it is a family affair.

Many small business owners are, unfortunately, unaware that if an employee on the payroll is related to the business owner, the employee may not necessarily qualify for Employment Insurance (EI) benefits. As such, it is possible that both the employee and the small business are paying EI premiums for a benefit to which the employee will never have entitlement.

There are numerous ways that an employee can be considered related to the employer:

  • The employer and employee are married (or common-law),
  • The employee is adopted, or
  • If there is a blood relationship (parents, brother, sister, children).

There are no rules that prevent relatives from working together, but there are rules about the EI insurability that should be considered in order to ensure that the correct source deductions are being withheld from the employee’s pay cheque. If the CRA determines that the employment situation is not EI Insurable, payment of EI premiums is not necessary and the employee will not be eligible to collect Employment Insurance in the event of employment ending.

If you aren’t sure of your situation, either the employee or the employer can request a ruling from the CRA by sending a letter or a completed Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan or Employment Insurance Act to your local CRA office.

If you would like to discuss EI eligibility for you or a family member or need further clarification on this article, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

Vacation Pay and Vacation Time Explained

Employers and employees often experience confusion when discussing vacation pay and vacation time. While there is some flexibility for employers, there are legislated rules that need to be followed and policies clearly communicated.

With some minor exceptions such as farmers or salespeople whose income is based solely on commission, ALL employees start earning vacation pay on the first day of employment.

In Manitoba, the minimum vacation pay earned by employees is 4% of gross wages from their first day of employment, and increases to 6% after completing five years of employment with the same employer. For a full time employee, 4% vacation pay equates to two weeks of working time and 6% equates to three weeks. Employers may choose to offer higher rates.

Gross wages include all regular wages (including hours paid as commission, salary, hourly, bonuses tied to productivity, and any other wages paid as compensation for the regular hours of work) and any general holiday pay. Overtime wages, wages in lieu of notice, and the previous year’s vacation wages are not included in the calculation of gross wages.

Vacation pay can either be paid to employees on each paycheque, or alternatively, accrued to an account on behalf of the employee. The first method is particularly suited to part-time employees, whereas full-time employees tend to prefer to have their vacation pay “saved” for them. The method of payment is selected by the employer.

When vacation pay is paid on each paycheque, employees are still entitled to take time off as vacation, however, they would not receive additional vacation pay while taking vacation time.

When vacation pay is accrued to an account on behalf of the employer, the employee can “draw” on the account when they take vacation time so that there isn’t an interruption in earnings. Vacation pay must be paid no later than the last day of work before vacation time starts and within 10 months of earning it. If an employee is terminated, the vacation pay “account” must be paid in full to the employee. Employers cannot use vacation in lieu of a notice period when terminating employment.

Employees are eligible to take vacation time after they have completed one year of work and must either take their vacation within 10 months of it being earned or the vacation account paid out. Employees and their employers can agree on when vacation will be taken.

In the event that an employer and employee cannot agree on when the vacation will be taken, the employer sets the vacation date. The employer must give the employee 15 days’ notice before the vacation is to be taken and cannot divide the vacation into periods shorter than one week. Employers can choose to schedule their employees’ vacations as part of an annual shut down.

Some employers allow their employees to take vacation time in the following year if it is not used. Employers should take care not to create a situation where an employee has a significant amount of vacation pay accrued that would then create an extended period of absence from employment; workloads must still be managed.

If you would like to discuss vacation time or vacation pay or need further clarification, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.

Karin Sparrow Award

Karrin Sparrow Plaque

Sadly, on October 24th, 2014, one of our colleagues Karin Sparrow passed away after a courageous battle with cancer.

Karin was a senior accountant with Five Star from 2011 until her passing. She was a terrific individual who represented the Five Star core values at work and in the community as good as anyone.

As a result, Five Star Accounting has created the Karin Sparrow Award which will be presented annually in May to an employee deemed to best represent the Five Star Core Values:

  • Knowledgeable
  • Hardworking/Problem Solver/Takes Initiative
  • Accountable and Dedicated to Five Star Accounting
  • Honest and demonstrates integrity
  • Accurate and efficient

A plaque defining the award and showing past recipients will be displayed in our reception area. As well, the recipient will receive a cash award and a crystal that may be proudly displayed on their desk for one year.

Karrin Sparrow Crystal

Please assist us in congratulating Vivian Sigurdson for being selected as the first recipient of the Karin Sparrow Award.

We look for input from staff and clients. If one of
Five Star Accounting’s employees has performed above and beyond for you, please do not hesitate to let us know! You may do so, by completing the
Five Star Employee Recommendation form.

Tips from an accountant, how to grow your business

Grow your businessManaging your finances is one of the most crucial aspects to running your small business effectively. Without a steady stream of cash flow, your business may not grow as you hope and may even end up in bankruptcy. Keep track of your finances and follow these tips to help make sure your business is profitable.

Get your customers to spend more

The most important factor you need to consider when thinking about increasing sales is your customers. Without customers your business would not be able to run. How can you get new customers, keep current ones and increase sales through each transaction? Determine what products and services you offer will get new customers in the door. Then review their needs to see where you might be able to offer more to increase revenues per customer.
You should also think about creative ways to market your products and services to make sure people are aware of what you do and that your offer stands out from the competition.
Remember, your reputation depends on what customers think about you. Make sure you are achieving a high level of customer service to each one of your customers and clients.

Receivables

For quick payment on invoices, consider asking your clients to preauthorize cheques or keep a credit card on file. This way banks can draw against their accounts at timed intervals. As a thank you, you may want to offer discounts or incentives for clients that pay their bills within a specified time period.

Outsourcing

If you are currently managing your own finances, you should consider outsourcing your accounting and bookkeeping. Hiring a professional will ensure that you avoid any mistakes that can happen when filing taxes at the end of the year. Also, any tax breaks that you may qualify for will not be missed. Late filing penalties will not be incurred.

Take control

The success of your business depends on your financial situation. If you would like to discuss how we can help take control of your business finances and achieve your financial goals contact Five Star Accounting today. We will set you free from your accounting and bookkeeping necessities allowing you more time to do what you do best and grow!

By the books

Five Star Accounting sets you free so you can grow

By Jennifer McFee

Ybonnie_kawkaou can count on Five Star Accounting Inc. to take care of your books while you take care of your business. Offering tailor-made solutions and services for several hundred clients, the homegrown business bases its approach on a five-star system: Team, Trust, Quality, Flexibility and Value.

With over 30 years of accounting experience, president and owner Bonnie Kawka initially founded a company called Hospitality Solutions in 2003, focusing mainly on accounting and bookkeeping services for the restaurant industry. Eight years later, the business rebranded as Five Star Accounting Inc., to better reflect their expanding and diverse customer base. Since then, it’s seen steady growth, with a mid-sized team who share Kawka’s passion for accounting and bookkeeping.

“We stand out because of our value, our systems and our processes,” Kawka says. “We’re very structured. We have a qualified staff. We have a thorough in-house training process as well. This is to ensure every staff member has an understanding of what is required to
properly take care of our clients.”

Accurate bookkeeping is essential to operating a healthy business, but it’s a task many entrepreneurs don’t enjoy. “I’m very passionate about accounting,” Kawka says. “I love it.”
Five Star Accounting Inc. focuses on three key components that simplify clients’ lives.

Read the entire article in Who’s Who, Manitoba Women in Business.

Five ways the 2015 federal budget positively affects small business

Small business ownerOur review of the 2015 Federal Budget, released on April 21, 2015, revealed the following five initiatives that provide opportunities for increased profitability in your business:

1. Reduction of the small business corporate tax rate from 11% to 9% over the next four years.
To ensure small corporations ($500,000 or less in sales) receive this benefit, these cuts will be guaranteed by law. Some examples of savings:

  • Net yearly taxable income of $30,000: $1,500 in tax reductions over four years
  • Net yearly taxable income of $500,000: $25,000 in tax reductions over four years

2. Significant reductions in credit card processing fees and new rules to ensure fairness in the payments industry.
Earlier this year, Visa and Mastercard promised significant reductions to merchant fees. Key changes were passed, ensuring that reductions will be passed along to small businesses, including the following:

  • Merchants will be able to opt out of their contracts if their payment processor raises rates or doesn’t pass on savings from Visa/MasterCard.
  • The entire code will now apply to mobile payments.
  • Payment processors can only auto-renew a contract for up to six months, enabling merchants to switch to more beneficial contracts.

3. Major changes at the Canada Revenue Agency, including less frequent tax remittances for new firms, a commitment to honour all written advice (including the CRA website) and a new CRA forum with CFIB.
Currently new businesses need to remit monthly for one year before becoming eligible to remit source deductions quarterly. Beginning in 2016 new employers with remittances under $1,000 per month will be eligible to remit quarterly provided they keep a perfect compliance record.

4. Confirmation of reductions
A new rate setting mechanism will be implemented in 2017, which is expected to result in a 21% reduction in the EI premium rate, from the current employee rate of $1.88 per $100 of earnings to $1.49 per $100 of earnings. Employer contributions would be reduced from $2.632 per $100 of earnings down to $2.086 per $100 of earnings.

5. Accelerated Capital Cost Allowance (CCA) for manufacturers extended for the next 10 years.
This is a write off used to encourage product-enhancing investment spending in the manufacturing sector that was first introduced in 2007 but due to expire in 2015.

For questions or clarification regarding these or any other portions of the recently released 2015 Federal Budget call your Five Star Senior Accountant today at (204) 927-7111!

Income tax returns for sole proprietorships and partnerships

Sole ProprietorshipAs part of your small business accounting, you are required to file the income tax return every year. Filing your sole proprietorship or partnership business income tax return in Canada is done on T1 income tax form. This is the same form used in filing personal income taxes. By completing and filing the form, you are declaring all your income, whether it is from a job or business.
You will need to gather all the papers that you need to start the process. They include:

  • The business number
  • Your social insurance number
  • Business and professional income guide from Canada revenue agency
  • Business records with totals for sales, business expenses and cost of goods sold.

Completing the form:

  1. Fill the first section, which is the identification section
  2. Fill form T2125: Statement of Business or Professional Activities. This will enable you to calculate the business income. This form is included with the income tax form.
  3. Get your business’s industry code from the appendix of Business and Professional Income Guide.
  4. Fill the income and expenses parts on form T2125. For a partnership, you should fill the sections of partner’s details and the section for claiming amounts deductible from your share of partnership income. The form contains information to assist in calculating business expenses. This includes charts on calculating the motor vehicle expenses to claim, sections for calculating capital cost allowance to claim and a section for calculating business- use -of -home expenses if your business is home based.
  5. On the section of Total Income on the T1 income tax return form, go to the subsection for self-employment income and fill in your gross or net business income, professional or commission income. Enter your other income such as employment income on the Total income section.
  6. Fill the rest of the T1 income tax return form.

Once the form is complete, double check for accuracy prior to filing. The income tax may be filed prior to June 15th, 2015 without penalty. Interest on unpaid taxes will accrue from April 30th, 2015.

Remember, we’re always here to assist you! Contact Five Star Accounting, Winnipeg’s leading accounting and bookkeeping firm.

Do You Know Your Accounting Policies and Procedures?

Do you know your businesses’ accounting policies and procedures?  Are they optimized for your specific type of business, and your operations individual needs?

If you were audited tomorrow, would your books stand up to Federal scrutiny?

Did you just break out in a cold sweat at the thought of a bunch of  “Revenooers” poring over your records, looking for inconsistencies?  If you did, it’s because you’re too busy running your business to spend your every waking moment fussing over your books.  Small businesses are the engine that drives the economy, but they are also the operations that are exposed to the greatest amount of risk.  As an entrepreneur, you are to be commended for your courage.  At Five Star Accounting, we completely understand the needs of small businesses in Winnipeg and Calgary.  We represent numerous small businesses in Winnipeg and Calgary.  We ourselves are a small business, with offices in (you guessed it) Winnipeg and Calgary.

Let our experience work for you.  We have the knowledge (kept current because we endeavor to be the best-educated accountants and bookkeepers you’ve ever met) and the experience to put your business finances in order.  We will help you set up a record keeping method that is easy to maintain, and that follows the best practices that we’ve established for all of our clients.  Once we’ve got you up and running, we’ll help you keep your accounting records up to date, so you can sleep comfortably at night knowing that your business’ books are completely in order.

We offer all the advantages of an in-house bookkeeper, without the added cost of another full-time employee.  For support with your accounting and bookkeeping needs, both in strategic planning and day-to-day support, contact Five Star Accounting, and experience our professional service and our personal touch.